The growing importance of loyalty programs in grocery retail

Grocery loyalty programs have been around for years, but with the changing landscape as well as customer shopping behavior, it is now more important than ever. The goal for loyalty programs is to be relevant and timely to shoppers and their preferences and to create a continuous dialogue between the customer and the brand or retailer.

The benefit retailers get utilizing loyalty programs is the access to customer data, shopping patterns and behavior with direct engagement with the shopper, elevating the communication and optimizing the offers to meet their needs. This ultimately leads to help drive sales for the retailers.

The current scenario

Customer loyalty programs build large customer databases and retailers can leverage this information to create more personalized and targeted promotions tailor-made for every customer. A successful loyalty program is a well-crafted blend of rewards and recognition features that change shopper behaviors. However, grocery loyalty programs are challenged not only by the economics of the industry but also the limited opportunities to differentiate the customer experiences for each customer.

However, compared to other industries, the grocery retail industry today still does not have a completely organized, leveraged and utilized customer data to deliver the optimum level of personalization and relevance to the customer, unlike in industries such as travel or banking.

Limited impact on shoppers

The grocery retail industry operates at small margins, which limit the rewards grocers can offer to the program members. Furthermore, compared to other retail loyalty programs, grocers depend on subsidizing their programs with discounts provided by the CPG manufacturers they are partnered with. Most loyalty programs have followed suit and use the same strategy, enabling shoppers to spread their loyalty across different brands.

Digital coupons - a primary feature of most grocery loyalty programs are offered by most of the retailers in an equal capacity. Another perk is the member pricing feature is an attractive way to entice shoppers into joining the program, but this feature too is replicated across all of the programs, limiting the impact these programs can create.

One feature of the grocery program that does create an opportunity cost and loyalty is reward points. Some shoppers even consolidate their shopping to a single brand in order to maximize the points earned and get a chance to get more discounts with every purchase. While most grocery programs prefer CPG subsidies, retailers should not limit the programs only to create more loyal customers. With e-commerce retail giants like Walmart and Amazon leaving no stones unturned to engage with shoppers, grocers need to double up on creating successful customer loyalty.

Looking ahead

Grocery retailers are facing several options today, they must decide among differing formats, both online and in-store, and seek the best combination of program features available to them.

A growing demographic - Millennials, in particular, seek immediate gratification, support, rewards, and recognition. Moreover, they do not invest a lot of time while planning grocery lists as they center their grocery visits around recipes more than replenishing a set stock. They are also far less price-sensitive in their menu planning as compared to previous generations. Additionally, as shoppers are increasingly opting for healthier lifestyles, produce as well as non-processed foods have become important aspects for grocers to drive retention and loyalty.

With the rising popularity of Walmart and Amazon among shoppers, grocers must foresee the future from both physical stores as well as digital capabilities. A well-managed loyalty program uses analytics and insights to enhance customer experience and elevate shopper journeys. Another major trend is the development of artificial intelligence. Leveraging AI, grocers can use unused retailer data and create additional value from it and tailor more relevant communication and improved personalized pricing and promotions.